15 is the new 30 when it comes to loans…

Low mortgage rates attracting more short-term borrowers

With the 15-year rate in sub-3% territory, about 3 in 10 refinancers are opting for loans of less than 30 years. Traditional 30-year fixed-rate loans are averaging 3.75%, a record low for the fifth straight week.

By E. Scott Reckard, Los Angeles Times,  June 1, 2012, link

As mortgage rates sink deeper into record territory, homeowners are refinancing into 15-year loans at a pace not seen in a decade, aiming to pay off their debt in time for retirement.

Freddie Mac‘s latest mortgage rate survey showed the traditional 30-year fixed-rate loan averaged 3.75% this week, down from 3.78% last week. It was the fifth straight week of record lows.

Even more eye-catching in Thursday’s survey was the average for a 15-year fixed loan — 2.97%, down from 3.04% a week ago. It was the first sub-3% reading in the nearly 21 years that Freddie has tracked the 15-year loan.

With housing markets still troubled, the rates are mainly benefiting refinancers whose luck or self-discipline has left them with significant home equity. Purchase lending remains sluggish: The Mortgage Bankers Assn. says that fewer than a quarter of mortgages these days are used to buy homes.

But the latest surge in refinancings caused the trade group last week to boost its projection for mortgage volume this year by nearly $200 billion, to $1.28 trillion.

People refinancing mortgages often debate the merits of 15-year or 20-year loans that may hasten their payoff date but require bigger payments than a 30-year mortgage. At the rates quoted this week by Freddie Mac, the monthly principal and interest payment on a 30-year fixed loan of $315,000 would be $1458.81, compared to $2,170.79 for a 15-year loan.

During the housing boom, few refinancers even considered shorter-term mortgages, which made up just 10% of all refis in 2006. To the regret of many, they instead extracted as much bubble-era equity as they could by taking on larger mortgages with long repayment times, and often with risky characteristics.

“People were getting 30-year interest-only loans, and they were pulling out all the cash they could,” said Richard T. Cirelli, president of RTC Mortgage Corp., a Laguna Beach loan brokerage.

“Now it’s just the opposite — they want shorter-term loans, and they’re strategizing to get the mortgage payoff to coincide with their retirement,” Cirelli said. “We’re seeing 20-year loans, 15-year loans and even quite a few 10-year loans.”

Instead of cash-out loans, some borrowers are even putting cash in when they refinance, he said — for example, to get their balances down to $417,000 for a one-unit property, the maximum amount at which the lowest interest rates are available.

Also contributing to the trend: recent changes in the Obama administration’s Home Affordable Refinance Program, which cut the fees for certain borrowers getting new loans if they reduce the term of the mortgage to less than 30 years.

By Freddie Mac’s count, 31% of the refinancers in the first quarter of this year opted for shorter-term loans.

That is the largest percentage since 2002, when the typical rate for a 15-year home loan ratcheted down over the course of the year from about 6.5% to less than 5.5%. About 35% of refinancing homeowners chose shorter-term loans that year, saving themselves about half a percentage point in interest compared with a 30-year loan, Freddie Mac economist Frank Nothaft said.

The type of borrower in both cases was the same, according to Nothaft — people in their 40s and 50s whose incomes had risen enough that they could afford hundreds of dollars more each month to pay off more principal.

“It costs them more, but they’re looking to own their homes free and clear when they retire,” Nothaft said.

The Freddie Mac surveys assume that borrowers pay about 0.75% of the loan amount to the lender in upfront fees and discount points. Solid borrowers who shop around often find slightly better rates, and homeowners also can lower the rate by paying additional discount points.

The survey does not include third-party costs such as appraisals and title insurance.

Mortgage rates tend to rise and fall along with the yield, or effective interest rate, on U.S. government debt. The 10-year Treasury note serves as a benchmark for fixed-rate loans.

Five years ago, in June 2007, the average yield on the 10-year Treasury was above 5%, and late last June it exceeded 3%. The yield fell to 1.58% on Thursday, as investors troubled by the threat of defaults in European countries crowded into the perceived safety of U.S. government bonds.

“It would have been hard to find economists at the beginning of this year who thought we’d see this kind of decline in rates,” Nothaft said. “I certainly did not.”

Real Estate Agents get “Yelped”…

Rating real-estate agents has its place

Rise of online systems has local industry eyeing survey-based effort, but manipulation feared

Jim Weiker, The Columbus Dispatch, May 29, 2012, link

From mortgage rates to market trends, almost every aspect of homebuying can be measured.

Except for one of the most important: the real-estate agent.

That’s changing, though, as a growing number of organizations and companies attempt to rate the performance of real-estate agents.

Driven by the presence of online rating systems, Real Living HER is testing a system, and the Columbus Board of Realtors is considering getting into the game.

“These ratings are already out there, and our thoughts were, ‘Hey, if we’re going to be rated, let’s make sure it’s a fair and equal system, and maybe we should do it ourselves or hire a company to do that,” said Chris Pedon, president-elect of the Columbus Board of Realtors.

Real Living and the Columbus Board of Realtors are looking at a system based on surveys from buyers or sellers.

About 60 Real Living HER agents are part of a test version of the system, in which an outside company collects survey data. Agents can opt in or out, but once in, they can’t pick and choose results.

“I want to hear from customers,” said Chris Derrow, president of Real Living Inc., the managing partner of Real Living HER. “Were they happy with us?”

The effort is partly in response to websites such as Zillow, Yelp or Angie’s List, which allow users to rate and comment on real-estate agents. Agents contend that most such sites are subjective, anonymous and easily abused.

“You can pay companies to make you look great on these sites … and make competitors look bad,” said Gerry O’Neil, a partner in C.R. O’Neil and Co. who is encouraging the local board to adopt a rating system. “It’s morally reprehensible; it’s the wild, wild West.”

One site, NeighborCity, tries a different approach: The site claims to be the first national effort to statistically measure agents’ performance. It looks at several statistics, including number of listings, percentage of listings that result in sales, percentage of asking price received, average price per square foot and number of days on the market before sale.

The site’s AgentMatch feature combines such data into a “secret sauce” to arrive at a ranking from 0 to 100 for each agent, said Jonathan Cardella, chief executive officer of the San Francisco-based site.

The site ranks about 1,500 of central Ohio’s 5,000 real-estate agents.

Cardella maintains that real-estate agents should be evaluated by an outside service instead of agents themselves.

“They’re inherently biased,” he said. “They want to head it off and control it so someone like us doesn’t do what we’re doing.”

In fact, NeighborCity has been accused of copyright violations by Multiple Listing Services (real-estate agents’ data arm) in Minnesota and Maryland.

In addition to the legal challenge, real-estate agents contend that sites such as NeighborCity involve their own conflicts because they are typically paid by agents who receive leads from the sites.

Agents also note a number of pitfalls to measuring performance statistically.

For starters, data from the MLS can easily be manipulated. An agent can drop the price on a listing, for example, making it look as if the home sold for much closer to the asking price than it did.

Or an agent can take a home off the market and place it back on, to make it appear as if the home sold more quickly.

Or transactions can be credited to a team leader, not the individual agent.In addition, some statistics, such as number of listings, can carry different interpretations: Although a high number of listings suggests experience, it also might suggest an agent who devotes minimal time to each listing.

“I think the quantitative approach they’re taking is at best misleading,” Derrow said. “You’re feeding the beast, the agent who knows how to work the system.”

Derrow expects that once the test of the local system is complete, the service will be offered to all Real Living agents, who would have the option of publicizing their results.

The Columbus Board of Realtors has looked at similar rating systems used by Realtor organizations in Peoria, Ill., and Houston.

Agents say they like the idea of rating agents, even though they know it’s a tricky business.

“I think everyone should be accountable,” said Jo-Anne LaBuda, a Keller Williams Capital Partners agent in Worthington. “I think it’s a great idea.”

Still, LaBuda and others say it’s difficult to judge something that often boils down to a personal connection between agent and client.

“It’s like a job interview,” said Board of Realtors President Jim Coridan. “I don’t think there’s anything better than an honest reference.”

To tell or not to tell?

Should You Keep Secrets From Your Real Estate Agent?

JUNE FLETCHER, Wall Street Journal, May 18, 2012, link

Q. What sort of financial information does the law require that I give to my own agent? What does she need to know about why I am moving?

–Manchester, N.H.

A. The law doesn’t require that you share your financial information or motives for moving with anyone, including your buyer agent.

But it’s realistic of her to ask for some proof that you aren’t just wasting her time. After all, she needs some inkling about why your current residence no longer suits you, what your price range is and how much you can afford so she can figure out what to show you.

In my lifetime, agents have gotten a bit more subtle about how they get this information. Twenty-five years ago, they would have simply asked you to fill out a form specifying your income, how much money you had saved up or invested, and how much you intended to spend. (Of course, since most agents worked exclusively for sellers then, this put buyers in an awkward situation and undercut their negotiating power.) Now, they are more likely to ask you for a pre-approval letter from a lender, who will ask you a series of questions on your finances and pull your credit report. You should attach this letter to any offer you make, since it will bolster your credibility with the seller.

Even cash sales can’t be done in a vacuum, since once you make an offer, you will have to produce a bank statement that shows that you have enough money to complete the transaction. This gets a little more complicated if most of your funds will come from equity in a current home that is on the market but hasn’t been sold yet. In that case, you will need to produce a statement showing the balance of your mortgage, and any home equity lines of credit or equity loans, as well as recent (within the last six months) comparable sales. The difference, your equity, must be sufficient to cover the purchase price and closing costs, after subtracting any applicable capital gains taxes. I suggest you factor in a cushion of at least $10,000 to cover moving and minor redecorating and fix-up costs as well.

But your question seems to cut deeper than just money, and I wonder why you are squeamish about sharing. Do you not trust your agent? If so, then you should find another pronto. Are you going through some sort of painful trauma, like a divorce? If so, then I urge you to share this fact with the agent, since buying property during this time will have legal ramifications that could affect your settlement.

Or is there something about your move or the source of your funds that you’d prefer that law enforcement or the Internal Revenue Service not find out about? If that’s the case, don’t entangle a blameless real-estate agent in your troubles and don’t ignore the problem. Consult an attorney.

And they just keep coming…

Foreclosures Show No Sign of Decline

NICK TIMIRAOS, Wall Street Journal, May 16, 2012, link

The percentage of American homeowners behind on their mortgage payments fell during the first quarter to the lowest level since the end of 2008. But the share of loans in foreclosure remains stubbornly high, according to a survey Wednesday.

The percentage of homeowners delinquent on their mortgages in the first quarter fell to the lowest level since the end of 2008, but the share of loans in the foreclosure process remains high. Dawn Wotapka has details on Lunch Break. Photo: AP.

At the end of March, 11.8% of all loans were at least 30 days past due or in foreclosure, the report from the Mortgage Bankers Association said. While that is still high by historical standards, it has improved steadily over the past two years, falling from 12.8% a year ago and 14.7% two years ago.

The decline in the share of homeowners late on payments was due almost entirely to fewer new cases of delinquency, a sign that households’ finances are improving. The percentage of borrowers behind on their mortgage but not in foreclosure fell to 7.4% at the end of March from 8.3% a year earlier.

“The drops we continue to see there are the best news out of this. It indicates the speed with which we’re working through the backlog” of bad loans, said Jay Brinkmann, chief economist of the Mortgage Bankers Association. The survey covers about 88% of all U.S. mortgages, or about 43 million loans.

Separately, the Commerce Department said construction starts on new housing jumped 2.6% in April to a higher-than-expected annual rate of 717,000, suggesting that home-building—a sector with the potential to boost the wider economy—continues to improve. New permits to build homes fell 7%, though the drop was from a 3½-year high in March.

Foreclosures, however, remain a concern. Although banks initiated fewer foreclosures in the first quarter than at any time since 2007, the share of loans in the process remains high.

Some 4.4% of mortgages were in some stage of foreclosure at the end of March, unchanged from the previous quarter and down only slightly from 4.5% a year ago.

The numbers mask big variations by state. The national foreclosure rate remains elevated largely because of states that require banks to process foreclosures through the courts. In these so-called judicial states, banks have moved to take back homes very slowly since judges uncovered record-keeping abuses in foreclosure processing 18 months ago. Banks have encountered fewer hurdles in nonjudicial states.

Mortgages in Trouble

The foreclosure rate in judicial states stands near 6.9% and has been flat or rising over the past year. Nonjudicial states have a much lower rate—about 2.8%—as they have been able to work through foreclosures quicker.

Of the 11 states with foreclosure rates above the national average, 10 of them have judicial processes. The top three are all judicial states: Florida had a foreclosure rate of 14.3% at the end of March, followed by New Jersey (8.4%) and Illinois (7.5%).

Several nonjudicial states that had severe housing problems, such as California and Arizona, have seen foreclosure rates drop below the national average. While there are signs that home prices are beginning to rise in more markets, including hard-hit Phoenix and Miami, those communities with a large “shadow” inventory of potential foreclosures could face renewed price pressure once banks take back and list for sale more of those properties.

In those states, investors have grown more confident that more foreclosures won’t be dumped on the market, said Mr. Brinkmann. There, “the market is stabilizing and people are coming back. I don’t think that’s true in Illinois right now.”

In a Seller’s Market, fast financing is a boon to your offer…

“Mega-Lenders” Lagging Smaller Ones in Processing Time

Jann Swanson, Mortgage News Daily, May 16 2012, link

Small and medium-sized lenders and community banks appear to be closing loans for refinancing faster than their “mega-lender” counterparts according to the Origination Insight Report for April released Wednesday by Ellie Mae.  The company, which samples loan applications that are processed through its loan management software, reported that, “While the average refinance going through our platform took five days longer in April than in March, it still only took 47 days.”  Ellie Mae contrasted this to a report from The Wall Street Journal  which recently said that the largest retail lenders are now quoting timelines as long as 60 to 90 days for refinancing.

Insight, which covers approximately 20 percent of U.S. loan originations, reported that the share of refinance applications actually dropped in April to 56 percent from 61 percent.  FHA Loans made up 28 percent of applications, unchanged from March and conventional loans 62 percent down from 64 percent.

Jonathan Corr, chief operating officer, said, “As we move into the spring and summer buying season, there was a significant pick up in the percentage of purchase loans; 44 percent in April up from 39 percent in March.  This is the highest level of purchase loans activity in the last nine months.”

The closing rate (defined as the applications received in the preceding 90 days that have closed) or “pull-through” rate for all loans in April was 48.1 percent, up from 46.9 percent in March.  For refinancing the rate was 44.7, up from 42.1 percent while the purchase rate was down from 56.4 percent to 55.2 percent.

The average loan that closed during April had a loan-to-value ratio (LTV) of 80, a FICO score of 745 and a debt-to-income ratio (DTI) of 24/35 compared to an LTV of 77, FICO of 749, and DTI of 23/45 in March. Applications that were denied had an average FICO score of 702, LTV of 87, and DTI of 23/43.  These numbers were all up slightly from the previous month.

There was very little difference between loan quality metrics for purchasing and refinancing with a convention loan, but the differences in FHA loans were significant.  The average FICO for refinancing into an FHA loan was 720 compared to 702 for a purchase.  The LTV was 87 versus 96, and the DTI was 26/39 compared to 27/41.

Loans that closed with an LTV over 95 percent represented 7.1 percent of conventional refis, up from 3.6 percent in March,  Corr said, “This has been slowly increasing since the HARP 2.0 announcement in October 2011, but correspondent lenders have only recently been able to run these loans through Desktop Underwriter and Loan Prospector.”

Are you ready for a Seller’s market?

4 insider tips for getting multiple offers

Mood of the Market

Tara-Nicholle Nelson, Inman News, Tuesday, May 8, 2012, link

<a href="http://www.shutterstock.com/pic.mhtml?id=82425943" target=blank>Wallet and house</a> image via Shutterstock.Wallet and house image via Shutterstock.

The market is heating up. No, really.

Coast to coast, a much higher percentage of listings are (a) selling, period (b) selling, fast and (c) selling at or above the asking price than they have during any spring in recent memory. Don’t take my word for it — from Chicago to Orange County, Calif., local papers have picked up and started to report on the phenomenon.

Yet and still, today’s buyers hold in recent memory the real estate mountaintop and the depths of the recession; some have been waiting out the market for years, hoping for a deal, but unwilling to buy into a declining market. Others actually lost homes to foreclosure at the beginning of the housing recession and are on the comeback trail. And competition from short sale and foreclosure listings is still abundant.

Long story short, the days when every home on the market got multiple offers are still a thing of the past. By and large, the listings I see receiving multiple offers and selling for over asking on today’s market have the following ingredients (a recipe sellers can replicate if they’d like to set the stage to receive multiple offers, too):

1. Pristine and staged. The homes that I’ve seen get multiple offers in my own market recently are immaculately clean — not a whiff of anything within noseshot, so to speak — and dressed to the nines. Their photos look like something out of a home decor catalog or design magazine — like no one lives there, even if someone does. Their owners have often spent months in advance cleaning, decluttering, organizing, primping and otherwise sprucing their homes for sale with the intention of blowing the competition out of the water.

I won’t purport to capture the art of staging in a sentence, but prepacking is a good visual to hold in mind as you prepare your home. (And anecdotally, I will say that it strikes me that a large proportion of multiple-offer homes have actually been professionally staged. I’d urge a seller who wants multiple offers to explore whether there’s some level of staging service or even staging advice that is worth the investment, before dismissing it as too expensive out of hand.)

2. Low prices. The homes that get multiple offers are not priced at the top of their markets. In fact, I know that many of their listing agents and owners specifically aimed to list these homes slightly below what they believed to be the true fair market value of the property at the time they listed it. Why? What seems like it might be risky is actually a time-proven strategy for cranking up the number of buyers who come view the property.

When buyers see a beautiful home listing online for less than they’d expect for the area, they show up in droves, eager to get a great home for a great value. And the math from there is simple — it takes more showings to drive more offers.

Once these value hunters are at the place and fall in love with it, they often become willing to offer more than the asking price if they need to, to secure it in the face of competing offers, knowing that it was priced well to start with.

3. Ample exposure to the market. Part of the effect of a low list price is that it creates an auction atmosphere, the environment that churns up bidding wars. The other half of the auction equation is ensuring that the home has ample exposure to the market, both in terms of time for buyers to come see and fall in love with the place and in terms of marketing the property aggressively to reach as many prospective buyer/bidders as possible.

Ample exposure can be achieved in several ways. Professional photography. An aggressive online marketing campaign — most experienced local listing agents will happily brief prospective seller clients on what they do in this vein. One ample exposure method I’ve seen become a standard practice in my area is to create and publish an offer timeline. In my town, it’s now almost universal for listing agents to list the home a day or two prior to the broker’s open house, hold it open for brokers once, hold two general Sunday open houses and then take offers the Tuesday following the second Sunday open house.

By publishing this timeline as part of the listing, buyers are assured that they will have time to see the place and get their ducks in a row in order to compete for it. And sellers are assured that they will not forgo the great offer that might come tomorrow by virtue of taking a good one that comes in the day after they put the home on the market.

Now, sometimes, aggressive buyers force a seller’s hand, making an offer immediately upon seeing the property, despite a preset offer timeline. In those cases, the listing agent can call up all the other agents who have expressed an interest in the place and offer them the opportunity to get in the game. For this reason, and for any other important updates or changes that might come along, it’s essential that buyers and their brokers let the listing agent know if they plan to make an offer, even early in the published offer timeline.

4. Showable on demand. Hard-to-show homes just don’t sell, when there’s lots of competition. When buyers’ brokers put their home tours together, if a particular listing requires too much notice (i.e., 48 hours) or too many calls and callbacks for appointment-setting, they’re very likely just to turn to one of the other dozens of homes that’s easy to show. Anything that diminishes the chances your home will be shown diminishes the chances your home will receive multiple offers.

To get multiple offers on today’s market, in fact, a seller’s home must be showable on demand. If you require an appointment, you should keep advance notice requirements as low as possible — an hour or less is ideal. Even better is to be accommodating and let brokers show your home at their leisure — ideally, stepping out or running to the market when they come by. Allowing your broker to put a lockbox on the place and let it be shown at all times while you’re at work or out and about on the weekends will require that you keep the place in tiptop shape, 24/7, but it will also be well worth it.

This time we’re being proactive…

Consumer bureau targets predatory lending

James O’Toole, CNNMoney, May 10, 2012, link

The Consumer bureau is considering a new set of rules on mortgage origination that it says would make the process simpler and more transparent for borrowers.Richard Cordray, director of the Consumer Financial Protection Bureau, testifying on Capitol Hill in January.

NEW YORK (CNNMoney) — The federal government is considering a new set of rules on mortgage origination that it says would make the process simpler and more transparent for borrowers.

The Consumer Financial Protection Bureau, created as part of the Dodd-Frank financial reform law, said Wednesday that the new rules will focus on mortgage points and fees, the current complexity of which can make it difficult for home-buyers to assess different loan offers. The rules would also include new standards for officials in charge of mortgage origination.

“We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them,” CFPB head Richard Cordray said in a statement.

Mortgage origination is thought to have played a key role in the housing crisis, as so-called “predatory lenders” steered borrowers into complicated loans that they couldn’t afford, which later went bust in large numbers. Originators are a focus of the Obama administration’s mortgage crime task force, announced in January.

Among other things, the rules under consideration would prohibit incentive payments to mortgage originators who steer customers into higher-priced loans, following on a similar rule issued by the Federal Reserve Board in 2010.

Origination officials, such as mortgage brokers and loan officers, would be required under the new rules to go through training and undergo background checks. Origination charges that vary with the size of a borrower’s loan would be banned.

The rules will likely be proposed formally this summer before being finalized in January of next year, the CFPB said.

Last month, the bureau outlined a set of new rules under consideration for mortgage servicers. These regulations would require clearer mortgage statements for borrowers and better disclosures about any fees or changes in a loan’s interest rate.  To top of page